Calculate the workers' compensation experience modification factor for a contractor with $85,000 in expected losses and $68,000 in actual losses:
Correct Answer
A) 0.80
Experience mod = Actual losses ÷ Expected losses = $68,000 ÷ $85,000 = 0.80
Why This Is the Correct Answer
The experience modification factor is calculated by dividing actual losses by expected losses. With actual losses of $68,000 and expected losses of $85,000, the calculation is $68,000 ÷ $85,000 = 0.80. This factor below 1.0 indicates the contractor had fewer losses than expected, resulting in lower workers' compensation premiums. The 0.80 factor means the contractor will pay 80% of the standard premium rate.
Why the Other Options Are Wrong
Option C: 1.20
This factor of 1.25 doesn't correspond to any logical calculation using the given figures. It would indicate 25% higher losses than expected, but the actual losses ($68,000) were significantly lower than expected losses ($85,000), making this mathematically impossible.
Option D: 1.25
This answer of 1.20 would result from incorrectly dividing expected losses by actual losses ($85,000 ÷ $68,000). This reverses the proper formula and would indicate the contractor had 20% more losses than expected, which contradicts the given data showing actual losses were lower than expected.
Memory Technique
Remember 'A over E' - Actual losses over Expected losses. Think 'What Actually happened divided by what was Expected' to get your experience modification factor.
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